July 4, 2018 / 11:11 AM / 2 years ago

Luxembourg utility Encevo attracts interest from China, Allianz -sources

* Southern Grid, Allianz, DIF in 2nd round of auction -sources

* Encevo stake seen fetching around 400 mln eur -sources

* Final bids due in early August -sources

* Growing criticism of Chinese energy infrastructure investment

By Arno Schuetze

FRANKFURT, July 4 (Reuters) - Southern Power Grid, one of two Chinese state grid firms, has been short-listed in an auction expected to fetch around 400 million euros ($467 mln) for a stake in Luxembourg utility Encevo, people close to the matter said.

A stake in Encevo would give the Chinese state a foothold in a power company in the heart of Western Europe following several other state-owned Chinese utilities which have already made major investments in southern Europe.

Southern Grid is vying with insurer Allianz, Dutch infrastructure investor DIF and a second Asian bidder for the 25.5 percent stake, sources said, adding that final offers are due by early August.

Ardian, Southern Grid, Allianz and DIF declined to comment.

Encevo comprises grid operator Creos and energy provider Enovos and was formerly known as Enovos. French buyout group Ardian had bought a 23.5 percent stake for 330 million euros in 2012 and in 2016 increased it to 25.5 percent, which it now plans to divest.

The private equity firm had bought the stake with a view to using Encevo as a platform for additional investments in grids, which account for the bulk of the company’s business.

Luxembourg’s main energy supplier has invested more than 1 billion euros in grids and renewables since 2012. The employer of 1,500 staff in 2017 saw earnings before interest, tax, depreciation and amortisation decrease 26 percent to 194 million euros as margins slid and impairments on renewable energy investments bit.

Any buyer of the Ardian stake, which comes with three board seats, will not have a blocking minority, which stands at 33 percent in Luxembourg.

The Luxembourg State owns 28 percent of Encevo directly, while state banks SNCI and BCEE hold a combined 26.2 percent and the City of Luxembourgas 15.6 percent. Luxembourg has a right of first refusal.

There has been growing concern in Europe over Chinese investment in key infrastructure.

China Three Gorges in May launched a bid to take full control of Portugal’s main utility EDP, in which it bought a minority stake in 2011.

State Grid Corporation of China bought minority stakes in Portuguese power grid operator REN in 2012, in Italian gas transport group Snam and power grid firm Terna in 2014 and in Greek power grid ADMIE in 2016. It is also trying to buy a minority stake in German grid operator 50Hertz.

In Germany, policymakers have begun considering options to prevent Chinese utility State Grid from buying a 20 percent stake in 50Hertz.

$1 = 0.8566 euros Additional reporting by Geert De Clercq, Toby Sterling and David Stanway; Editing by Elaine Hardcastle

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